Money Mission: Earn Your Own Income

To Own, or Not To Own?

Purchasing a home is one of the most important spending decisions that people will make in their lifetime. While having a piece of property with your name on the title may be a cherished dream that you would like to achieve, it can also be an intimidating and uncertain financial move to make.

If you are trying to choose between buying your own home and continuing to pay a landlord, you can’t just compare the cost of renting with your expected mortgage payment. Let’s take a look at some of the various factors that you need to consider if you are thinking of taking this big step.

Amount available to invest

Acquiring a property in Jamaica can be a costly affair, so you need to be aware of the full amount of money you will need to spend before you can get your name on the title. Most people aim to secure the deposit of between 10 to 15 per cent, but there are other costs that will be incurred.

To ensure that there have been no changes made to the property, you need to obtain a surveyor’s ID report, and if you are purchasing the property with a mortgage, you will also need a valuation report. You are responsible to pay for half of the government stamp duties and registration fees.

It’s prudent to hire a reputable lawyer with experience in property transactions in Jamaica. Along with paying for this legal service to ensure that your purchase goes smoothly, you have to cover half of the lawyer’s fees for preparing the sales agreement and letters of possession for the utility companies.

There may be other mortgage-related costs such as the commitment fee for the loan, government stamp duty on the mortgage, and the mortgage company’s attorney fees. You can download a Jamaican real estate transaction calculator to guide you on these costs at financiallysmart.org.

Monthly home expenses

When deciding to purchase a home, you also need to determine all the expected costs that home ownership will add to your monthly budget. You don’t want to suddenly become ‘house poor’ after you have acquired the property, and possibly threaten your ability to meet all your other bills.

Consider all the costs of relocating to your new home such as hiring a moving van, as well as any renovations or upgrades you want to make to the property. Be cautious about going overboard with decorating your new place; you don’t have to buy all the furniture and accessories immediately.

Look at recurrent expenses such as mortgage, peril insurance, and maintenance or strata fees, as well as the annual costs such as home insurance and property tax. You can also download a home ownership checklist at financiallysmart.org that will help you to itemise all these extra home costs.

Before you make a buying decision, put the new home ownership costs into your existing budget to see how they would impact your cash flow. If your current income does not cover these additional costs, you may need to reconsider your home plans or look for ways to boost your earnings.

Return on your investment

While some persons may state that their home is their biggest investment, savvy investors may disagree. One definition of an investment is something that puts money into your pocket; however, it is possible that your home can negatively affect your cash inflow and lower your net worth.

While you expect your home value to increase over time and justify the cost of its acquisition, how can you know if it would have been a smarter financial decision to put your money into another investment? How can you evaluate the true opportunity cost of being a home owner?

There is a useful calculator at crown.org, which compares the cost of renting vs buying a home. It computes all the costs of home purchase along with your annual home expenses, and compares what your investment at the end of a specified time would be worth if you had continued to rent.

Some elements are specific to the United States, where home ownership qualifies persons for tax benefits, but the tool can still help you to project whether your home purchase will be a profitable investment. See details at http://www.crown.org/FindHelp/Personal/Calculators/rentvsbuy.aspx

Emotions of home ownership

After considering all the monetary aspects of purchasing a home, the way you feel about home ownership might just be the deciding factor. If you have always longed to turn the key in your own front door, then the financial implications may have little impact on your determination to buy.

However, it’s important not to allow your emotions to sway you to get a property that you just can’t afford. Use the budget tools and calculators to help you identify where you need to improve your finances so that you can make a responsible choice that will not jeopardise your financial future.



Cherryl

This article was written by Cherryl Hanson Simpson, Cherryl is a Financial Consultant and Coach, 
and founder of Financially S.M.A.R.T. Services in Jamaica. 
Visit her website at www.financiallysmartadvice.com and www.financiallysmartonline.com
Email:.(JavaScript must be enabled to view this email address)